Will a Good Business Plan Outweigh a Bad Debt History When Applying for a Business Loan?

The economy being what it is, many individuals are attempting to start their own business. However, many of these same individuals are suffering from bad credit. Will creating a business plan help them get a small business loan or is it an act of futility?

Regardless of whether you have good or bad credit, the first step in obtaining financial backing is to create a business plan. You will need this if you are going to a bank or trying to secure private investors. It is a rare situation when either an individual or a lending institution will blindly write a check based on someone’s winning personality.

When creating the business plan, it is important to be as thorough as possible

It will take time to research the industry, and no stone should go unturned. It is not uncommon for it to take weeks, or even months, to create a realistic and truthful business. Even if you find the beginning numbers are not so flattering but the long-term earnings look promising, it is better to present it this way than to create fantasy numbers you think will make the business look more attractive.

In most cases, these institutions or individuals are doing just as much work, if not more, than you are in regard to finding out if the industry is viable. Or, they have individuals on staff that have already done the necessary research or are experts in a particular field that will know if your figures are spot on or not. If they find the business plan to be fraudulent, you will have no chance whatsoever of getting financial backing.

Now, on to the point of bad credit

Technically, no, a business plan will not guarantee you anything, but not having one is a huge mistake. While the business plan is not a guarantee, it could be the difference in a financial group or investor taking a chance. Your best bet is to be upfront about your own personal finances as well as the outlook for the new company. It would not be surprising if one or more of the individuals responsible for approving or vetoing the loan were at one time in your very shoes.

Another benefit to having a business plan is that even though your credit is subpar and they cannot justify lending you the full amount, they may work with you to try to adjust the budget to offer you a smaller amount of financing. There is also the possibility of offering you the full amount if you are able to find a co signer for the loan.

If you are unable to complete a business plan on your own, many small business associations will offer assistance. In addition, there are programs available that can walk you through the process step by step. If you still believe this is beyond your expertise, there are also professional services available, but they can be very expensive due to the man-hours it takes to create a business plan.

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